Financial Fallout Spreads.

Abengoa Bioenergy US Holding filed for Chapter 11 bankruptcy on Wednesday, listing up to $10 billion in total liabilities, including an unsecured leveraged loan of $1.45 billion and unsecured bonds of $3.85 billion. It didn’t list its secured debts. The filing was prompted by involuntary bankruptcy petitions by three US grain suppliers, which claim to be owed more than $4 million in unpaid invoices – million with an “m,” that’s how out of money this outfit is.

The suppliers had reportedly been told by the company that its Spanish parent, Abengoa SA, which controls the “central treasury,” had run out of cash, Reuters reports. And they cited concerns that “the U.S. business was transferring cash and loan proceeds to Abengoa SA.”

Even by recent standards, Spain’s teetering green-energy giant Abengoa SA has not had a good week. First, its former President, Felipe Benjumea, and former CEO, Manuel Sanchez Ortega, faced the indignity of standing trial for malfeasance over the exorbitant payoffs they awarded themselves just months before the company hit the wall. In Sánchez Ortega’s case, he is also accused of sharing insider information about Abengoa’s finances with his new employer, the world’s biggest investment fund, BlackRock [read: The Mother of All Shorts].

During testimony, Sánchez Ortega claimed that it was pure coincidence that BlackRock had placed a sizable short position against Abengoa just weeks after hiring him, one of the few people with first-hand knowledge of the true state of the company’s accounts. Benjumea told the court that the only problem Abengoa suffers from is a liquidity pinch.

That’s right: the sole reason why the Seville-based company has had to file for preliminary bankruptcy and is just one month away from going down in history as Spain’s biggest ever corporate failure is that it’s a little short on cash at the moment.

It is, one assumes, the same reason why Abengoa is begging bondholders for an extension on the repayment of €500 million ($551.5 million) of bonds maturing next month.

To plug Abengoa’s “liquidity” shortfall, all the firm needs is €1.66 billion of fresh debt over the next two years, while it sheds assets and stages a tactical retreat from some of its key global markets, including Brazil and Mexico where it has left behind a vast trail of unpaid debt, cancelled operations, and unemployed workers.

The Spanish firm’s creditors, which include the so-called G7 group of banks (Santander, HSBC, Caixabank, Bankia, Popular, Sabadell and Crédit Agricole) who are owed over €5 billion, and its senior bondholders, including international investment firms like AIG, Invesco, D.E. Shaw, Varde Partners, Centerbridge Partners and Blackrock (no, seriously), are not too enamored with the idea of pouring a further €1.6 billion of “enhanced liquidity” down Abengoa’s bottomless pit.

If they don’t do it — and do it fast — the company will not be able to pay its workers at the end of this month. That’s just three days away. And it won’t be able to pay them in March. For its immediate needs, Abengoa needs a floater of €165 million — on top of the €125 million emergency loan it borrowed in September and the additional €106 million it borrowed in December, which matures in March. On both occasions it was the banks who ponied up the cash. But this time round it’s the bondholders’ turn.

To try to calm its creditors’ fraying nerves, the company’s new CEO, José Domínguez Abascal, has spent the last few weeks working with the firm’s auditor, Deloitte, to establish, once and for all, the full extent of the gaping holes on its balance sheets — holes that his predecessor, Manuel Sánchez Ortega, now in the employ of Blackrock, allegedly played a key role in creating.

However well-intentioned Domínguez Abascal’s gesture may be, it is unlikely to instill much in the way of confidence in Abengoa’s accounting integrity, especially if the fiduciary clean-up is being led by Deloitte, the auditor that for three full years failed to spot any of the glaring irregularities on Abengoa’s balance sheets, for which it could face investigation in both Spain and the US [read: Deloitte About to Pay for Its Spanish Sins?].

Whatever happens over the next month, the financial fallout will be felt far beyond Abengoa’s walls. The company’s shareholders have already been wiped out, while bondholders in Mexico and Brazil have been left out in the cold. If bankruptcy is averted before the deadline expires at the end of March and the company’s debt is restructured, the firm’s providers and subcontractors could end up losing 50-60% of the money they’re owed.

As for the Spanish company’s lenders, bondholders and insurers, they’ve been made an offer that most would much prefer to refuse: a write-down of 70% of the debt they’re owed, now worth in excess of €9.5 billion, in return for 95% control of the restructured firm. None of this includes the financial havoc the company’s subsidiaries have created in the US and other countries.

The alternative is to let the firm go to the wall, with the attendant loss of 7,000 Spanish jobs, most of them in Andalusia where the unemployment rate is already 31%, and youth unemployment 57%. For the banks, bondholders and other creditors, it could be a long wait in a long line before they see their share of Abengoa’s assets. Either way, they’re going to take a hit.

As for Abengoa’s former President and CEO, one can only hope that justice takes its course, though in today’s reality, that would be a very unlikely outcome. By Don Quijones,Raging Bull-Shit.

Abengoa could be a metaphor for the global economy: rapid expansion fueled by debt, followed by collapse.

B.S.

Feb 26, 2016 at 12:36 am

It’s very sad to see this situation in Spain. It is an indication of an underlying, symptomatic political/economic/business system that is filled with corruption through and through.

Much like China, the Spanish economic system is built on false economic data and political influences deep and pervasive within the culture of “anything goes as long as it is profitable for me”.

The politics of Spain, much like several other European and Asian countries is a fascist type of politico-economic philosophy; a system of privately owned firms run by political dictates and corrupted by laws passed at the behest of special interests at the expense of the masses.

The whole shebang is slowly rotting from within, and occasionally bursting to the surface in scenarios like the unfolding Abengoa event.

Expect more to follow as the small economic repercussions spread throughout the system.

John Doyle

Feb 26, 2016 at 12:52 am

They have obviously learnt how to operate after seeing the banks in action during and after the GFC, and how the principals got off scot free.

Julian the Apostate

Feb 26, 2016 at 2:39 am

As a layman observing the passing scene, I am reminded why I swore back in the 70s not to ever work a union job. My reasons were not deeply intellectual at the time, rather it was the havoc wreaked on the family whenever the dreaded word ‘strike’ loomed on the horizon. Part of this was my father’s fault: he never saved for a rainy day and lived paycheck to paycheck. Strike pay kept us fed but just barely…I remember a two week period when it was potato soup every night. It was obvious to me then that the union didn’t give a damn about the rank and file, any more than these clowns care about their 7000 employees. Or their shareholders or their bond holders. Perhaps my analogy is not apt, but long gone are the days that a man was punished for such behavior, and nowadays NO good deed goes unpunished.

Dan Romig

Feb 26, 2016 at 7:27 am

Abengoa sure has an impressive looking website, but to quote the movie Slapshot, “10,000 mill workers placed on waivers.”

There are no winners here. Bond holders can get 30 cents on the dollar and 95% control of a messed up company? 7,000 workers will most likely be put out of their jobs.

The fate of Sanchez Ortega will tell the world quite a lot about Spain, but as it looks now, the nation should be avoided by investment capital. Corruption is everywhere from politicians to CEOs. What future do the youth of Spain have?

Chicken

Feb 26, 2016 at 11:13 am

Perhaps Volkswagen could kill a flock of birds with one stone on this one? It escapes me why diesels would need emissions if they were burning bio-diesel distilled from the plentiful roadside debris deer normally feast on.

Pretty sure there’s a metaphor in there somewhere…

Flying Monkey

Feb 26, 2016 at 1:01 pm

I worked for Bosch in diesel injection systems for many years. Bio-diesel is very much chemically different normal petroleum based diesel. Bio-diesel has the nasty little habit of leaving residuals and deposits all over the internal components leads to mechanical failure by gunking up the small clearances in the injector moving parts such as the nozzle needle or the valve piece piston. We are talking gaps of 2 -5 micros. Usually the injector needle nozzle will seize first. I worked a lot with the techs in warranty analysis and saw first hand the havoc bio-diesel reeked on the moving parts. Some fleets would work with a two tank system. They would do most of their running on bio-diesel and switch to a tank with normal diesel to flush the system out before stopping. A lot of times the drivers did not switch the source and the system ended up failing too. The main problem is letting the system set with bio-diesel in it. The biggest problem is that it later will not start as the components have stuck together and the pressure generated from the pump in the starting condition is not high enough to break the components free.

As far as emissions with Bio-diesel, NOx will still be an issue as long as combustion temperatures are high. The nitrogen in the air reacts at the high temperatures, regardless of what type of fuel you are using. The NOx emissions are more a characteristic of the combustion process/Engine than the fuel.

Any engine becomes more efficient if the combustion temperatures are raised. Common rail diesel systems can have multiple injection points. Pre-injection is used to minimize knocking. There is a main injection for the power and there is also a post injection to help bring the temperature down and is used many to reduce emissions. If you want to ruin a common rail injection system and have thousands of dollars in repair costs, then use Bio-diesel by all means.

F.M.
Thanks for that post.
Hope you don’t mind but I have linked that it to a Euro Vehicle Forum I’m a moderator of.

Overall. Those investors dabbling in renewable companies that rely on government/taxpayer subsidies or use technology with dodgy economic claims are in for a shock in the long term.

Bigfoot

Feb 27, 2016 at 12:06 pm

Great info. I wonder if residuals/sticking/gumming up problems could be mitigated with an automated shut down system of some sort? Turn the engine off & the fuel supply switches to a fuel/cleaner solution that the engine runs off of for a very short period & requiring only a small tank.

I’ve owned a lot of diesel powered trucks & equipment & still have a diesel powered tractor. Never had any experience with bio-diesel though. Got any good links to help increase my knowledge base?

max wulff

Mar 6, 2016 at 4:25 pm

if you had asked Alan and Ben directly they would have give you the keys to the printer, there is really no good reason to leave the “solar systems” to fight it out by themselves, “go ahead, we’ll print more” “jobs depend on industry like this”